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India’s Rs 5,500-Crore Sugar Package Will Add To Global Glut

India’s third incentive for sugar mills in four months is expected to add to the global glut even as prices have tumbled to their lowest in a decade because of excess supply this year.

The cabinet on Wednesday approved a Rs 5,538-crore package for the sugar sector to deal with the excess production, Finance Minister Arun Jaitley said after the meeting. That would push exports to ease glut in the country.

“India would end up exporting roughly 4-4.5million tonnes of sugar which is a huge positive for the industry as we are staring at a bumper crop next season,” Atul Chaturvedi, executive chairman at Shree Renuka Sugars told BloombergQuint. “Also, a weaker rupee will make exports much more competitive.”

The measures announced by the government since June have ranged from higher price for ethanol extracted from sugarcane to financial assistance to sugar mills. That will help reduce the nearly Rs 14,000 crore in outstanding arrears that millers owe cane farmers ahead of the next general election.

Production in India, the largest producer of the commodity after Brazil, is seen increasing to 35 million tonnes in the next marketing year against the annual domestic demand of 26 million tonnes. That will add to the supply glut when prices have fallen more than 23 percent so far this year in New York trading. Sugar groups in Brazil and Australia had already indicated that they would move the World Trade Organization against incentives by India, Reuters reported earlier this month.

The measures announced by the government on Wednesday include:

Minimum export quota of 5 million tonnes.

A 152 percent jump in production assistance to cane farmers from Rs 5.5 per quintal to Rs 13.88, costing the exchequer Rs 4,163 crore.

Transport and handling subsidy of Rs 1,000 per ton for mills located within 100 kilometres of ports, Rs 2,500 per tonne for mills located beyond 100 km from port in coastal states, and Rs 3,000 a tonne for mills in other than coastal states. That would cost the government Rs 1,375 crore.

Only those mills which fulfil the eligibility conditions of the government will be entitled to the assistance and will come into effect from sugar season 2018-2019.